PEUGEOT REBUILDS GERMAN NETWORK

FRANKFURT - Peugeot is trying to fix its chaotic German dealer network and build the brand's dismal sales in the country.

'Peugeot is fighting for survival in Germany,' said sales director Wolfgang Steib. 'We have no choice (but to use radical methods).'

Steib, 37, was hired by Peugeot from Porsche in 1997 to boost the brand's puny 2.3 percent share in Germany.

'This was disgraceful for Peugeot's potential in terms of product and image,' said Steib, 'and definitely too little for dealers.'

Steib wants to double Peugeot's share by 2005 and increase annual sales to 171,000 units a year (from 95,000 units in 1998). But raising the profitability of the dealer network to 2.5 percent is even more important. Currently dealer margins average below 1 percent.

'Only a dealer who earns enough is willing to invest for the future with Peugeot,' said Steib.

While the Peugeot network in other markets had been continuously developed, he said nothing had happened in Germany, the largest European market.

'Over the past 10 years our dealer development has been totally unsatisfactory,' said Steib. 'In good times Peugeot completely forgot to provide for the weaker dealers. We realized we had to break up this structure and start again.'

Peugeot Germany has direct contracts with 556 dealers, and indirect contracts with 403 others. Steib said there was severe overlapping in some major areas, causing serious intra-brand competition.

Conversely, 120 sales areas were without any dealer representation at all.

With help from outside marketing experts, Steib has drawn up a new structure. Three hundred sales areas have been defined and classified into three categories. These are the eight main metropolitan areas (Berlin, Hamburg, Dortmund, Dusseldorf, Cologne, Frankfurt, Stuttgart and Munich) where Peugeot Germany will operate the dealers; 60 bigger cities with 150,000-500,000 inhabitants; and about 230 rural areas covering the rest of Germany.

Around 200 existing Peugeot dealers have qualified for the new network. 'But we will have to acquire new, strong dealers for the other 100 areas,' said Steib.

Ten people have been employed to help find new dealers. The process is expected to be completed by 2001.

The remaining dealers will have to team up with the main dealership in the area - or leave the Peugeot brand.

'It is a very emotional issue, being asked to give up the independence you have known for years,' said Steib. 'But the vast majority of our partners understand that the new structure is necessary not only for the brand's survival, but also for their own survival.'

Guido Zinssmeister, president of the Peugeot dealer association in Germany, is one of the selected dealers.

'In general, we support the restructuring process because we also see the need to be more profitable,' he said. 'But it is essential to keep a strong service network.'

According to Steib, a budget of some DM1 billion (euro 506 million, $542 million) is available over the next three years to turn around Peugeot's network in Germany.

Citroen's sales network in Germany is expected to undergo a similar restructuring process once the changes at Peugeot's dealer network have shown success.